<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to ______________
Commission file number 0-14224
IFR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 48-1197645
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10200 WEST YORK STREET, WICHITA, KANSAS 67215
(Address and zip code of principal executive offices)
(316) 522-4981
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
----- -----
There were 8,195,948 shares of common stock, par value $.01 per share, of
the Registrant outstanding as of April 17, 1998.
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IFR SYSTEMS, INC.
FORM 10 - Q
INDEX
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1997
and March 31, 1998 3
Condensed Consolidated Statements of Income for the three
and nine months ended March 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended March 31, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II -- OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 12
SIGNATURES 13
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
----------- ----------
(UNAUDITED) (NOTE)
ASSETS (000'S OMITTED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 366 $ 2,379
Accounts receivable, less $848 and $500
allowance for doubtful accounts, respectively 42,567 19,707
Inventories:
Finished products 20,990 8,744
Work in process 14,254 6,517
Materials 19,599 7,144
----------- ----------
54,843 22,405
Prepaid expenses and sundry 1,844 99
Deferred income taxes 2,868 2,191
----------- ----------
TOTAL CURRENT ASSETS 102,488 46,781
PROPERTY AND EQUIPMENT
Property and equipment 97,802 18,231
Allowances for depreciation (deduction) (68,684) (10,053)
----------- ----------
29,118 8,178
PROPERTY UNDER CAPITAL LEASE
Building and machinery 4,809 3,761
Allowances for depreciation (deduction) (1,514) (1,278)
----------- ----------
3,295 2,483
OTHER ASSETS
Cost in excess of net assets acquired and other
intangibles, less amortization of $5,180 and
$4,111, respectively 43,773 8,202
Developed technology, less amortization
of $156 and $0, respectively 18,644 -
Other 3,641 186
----------- ----------
66,058 8,388
----------- ----------
$ 200,959 $ 65,830
----------- ----------
----------- ----------
</TABLE>
Note: The balance sheet at June 30, 1997 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
3
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<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
----------- ----------
(UNAUDITED) (NOTE)
(000's OMITTED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank borrowings (Note 2) $ 9,000 $ 330
Accounts payable 14,248 3,649
Accrued compensation and payroll taxes 7,339 5,634
Other liabilities and accrued expenses 19,255 2,222
Current maturity of capital lease obligations 175 175
Current maturity of long-term debt (Note 2) 1,750 -
Federal and state income taxes and local taxes 1,903 1,256
----------- ----------
TOTAL CURRENT LIABILITIES 53,670 13,266
CAPITAL LEASE OBLIGATIONS 3,765 3,765
LONG-TERM DEBT (NOTE 2) 98,250 -
DEFERRED INCOME TAXES 11,305 645
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value---authorized
1,000,000 shares, none issued - -
Common stock, $.01 par value---authorized
50,000,000 shares, issued 9,266,250 shares 93 62
Additional paid-in capital 6,183 6,400
Cost of common stock in treasury---1,075,813
and 1,130,014 shares, respectively (deduction) (8,764) (8,040)
Cumulative translation adjustment 178 58
Retained earnings 36,279 49,674
----------- ----------
33,969 48,154
----------- ----------
$ 200,959 $ 65,830
----------- ----------
----------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
4
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IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------------------------------
1998 1997 1998 1997
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SALES $ 45,778 $ 26,238 $ 98,838 $ 76,483
COST OF SALES (NOTE 5) 31,252 15,305 61,152 45,984
--------- -------- --------- --------
GROSS PROFIT 14,526 10,933 37,686 30,499
OPERATING EXPENSES
Selling 6,099 2,817 11,919 8,624
Administrative 3,478 2,142 7,842 6,177
Acquired R&D (Note 5) 15,700 - 15,700 -
Engineering 5,040 2,938 11,102 8,082
--------- -------- --------- --------
30,317 7,897 46,563 22,883
--------- -------- --------- --------
OPERATING INCOME (LOSS) (15,791) 3,036 (8,877) 7,616
OTHER EXPENSE 1,350 128 1,292 57
--------- -------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES (17,141) 2,908 (10,169) 7,559
INCOME TAXES (BENEFIT) (157) 1,182 2,649 3,007
--------- -------- --------- --------
NET INCOME (LOSS) $ (16,984) $ 1,726 $ (12,818) $ 4,552
--------- -------- --------- --------
--------- -------- --------- --------
NET INCOME (LOSS) PER COMMON SHARE $ (2.08) $ 0.21 $ (1.57) $ 0.56
--------- -------- --------- --------
--------- -------- --------- --------
NET INCOME (LOSS) PER COMMON SHARE
ASSUMING DILUTION $ (2.08) $ 0.20 $ (1.57) $ 0.54
--------- -------- --------- --------
--------- -------- --------- --------
AVERAGE COMMON SHARES
OUTSTANDING 8,173 8,164 8,190 8,169
--------- -------- --------- --------
--------- -------- --------- --------
DILUTIVE COMMON SHARES
OUTSTANDING 8,173 8,499 8,190 8,485
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
See notes to condensed consolidated financial statements.
5
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IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1998 1997
---------- ----------
(000'S OMITTED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (12,818) $ 4,552
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation of property and equipment 2,556 1,720
Amortization of intangibles 1,069 597
Write off of acquired R&D 15,700 -
Changes in operating assets and liabilities:
Accounts receivable (3,887) (1,824)
Inventories 5,943 (892)
Other current assets 1,115 (144)
Accounts payable and accrued liabilities 1,813 1,686
Other current liabilities (3,038) 365
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,453 6,060
INVESTING ACTIVITIES
Payments for acquired businesses (108,851) -
Purchases of property and equipment (3,169) (2,240)
Sundry (3,536) 317
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (115,556) (1,923)
FINANCING ACTIVITIES
Purchases of capital stock for treasury (2,026) (4,178)
Principal payment on capital lease obligations - (2,359)
Principal payment on long-term debt - (221)
Principal payments on short-term bank borrowings (3,535) (23,325)
Proceeds from acquisition loan 100,000 -
Proceeds from short-term bank borrowings 10,150 24,600
Proceeds from issuance of Industrial Revenue Bond - 3,940
Proceeds from exercise of common stock options 1,116 799
Payment of dividends (577) -
---------- ----------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES 105,128 (744)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (38) 94
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,013) 3,487
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,379 266
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 366 $ 3,753
---------- ----------
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
6
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IFR SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1998
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all normal recurring
adjustments considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending June 30, 1998. For further information, refer to the Consolidated
Financial Statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1997.
NOTE 2 -- BANK BORROWINGS
In connection with the Marconi acquisition (Note 4), on February 5, 1998
the Company entered into a Credit Agreement with The First National Bank of
Chicago to borrow a maximum of $130,000,000 in the form of two term loans in the
principal amount of $50,000,000 each and the remaining $30,000,000 in the form
of a revolving line of credit. At March 31, 1998, the Company has borrowed
$100,000,000 under the term loan provisions and $9,000,000 under the revolving
loan provisions of the Credit Agreement.
The loans are secured by the pledge of all of the capital stock and by
security interests on substantially all of the assets of the Company's United
States subsidiaries and by a pledge of 65% of the common stock of IFR Systems
Limited, a United Kingdom subsidiary. The loans bear interest either at the
"Alternate Base Rate" (a fluctuating interest rate equal to the higher of First
Chicago's base rate or the sum of the reported "federal funds" rate plus 0.5%
per annum) or at the "Eurocurrency Base Rate" (the LIBOR rate for the applicable
currency for the relevant interest period). Both of such rates are increased by
an applicable "margin" which varies up to 2.5% per annum.
NOTE 3 -- COMMON STOCK
On November 7, 1997, the Company's Board of Directors approved a
three-for-two stock split to be effected in the form of a 50% stock dividend.
The additional stock was distributed on December 5, 1997 to shareholders of
record on November 21, 1997.
7
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All references to number of shares, share prices and per share amounts have been
restated to reflect the stock split.
NOTE 4 -- MARCONI INSTRUMENTS LIMITED ACQUISITION
On February 6, 1998, the Company acquired for cash all of the issued and
outstanding stock of Marconi Instruments Limited in Hertfordshire, England
(collectively with its subsidiaries "Marconi") from The General Electric
Company, p.l.c. ("GEC"). The purchase price was $64,350,000 plus L26,000,000
for a total purchase price of $106,939,000. The acquired business is engaged in
the design, manufacture, distribution and sale of test and measurement equipment
for the telecommunications and electronics industries.
The acquisition has been accounted for as a purchase and, accordingly, the
net assets and results of operations are included in the consolidated financial
statements from the effective date of acquisition. The purchase price has been
allocated to the assets and liabilities based on their estimated fair values at
the date of acquisition as follows:
<TABLE>
<CAPTION>
($000's)
---------
<S> <C>
Purchase price $ 106,939
Acquisition fees 1,912
---------
Total purchase price $ 108,851
---------
---------
Total current assets $ 61,737
Property & equipment - net 20,850
Other assets 70,090
---------
Total assets 152,677
Total current liabilities (31,530)
Deferred income taxes (12,296)
---------
Total net assets $ 108,851
---------
---------
</TABLE>
The following unaudited pro forma data presents the consolidated results of
operations as if the acquisition had occurred on July 1, 1996 after giving
effect to certain adjustments, including amortization of intangibles, increased
interest expense and related income tax expense. The pro forma results have
been provided for comparative purposes only and do not purport to indicate the
results of operations which would have actually occurred had the acquisition
been in effect on the date indicated, or which may occur in the future.
8
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($000's omitted, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- ---------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $56,205 $57,694 $164,274 $158,470
Net Income $ 1,069 $ 1,924 $ 5,985 $ 3,320
Net Income Per
Common Share $ 0.13 $ 0.24 $ 0.73 $ 0.41
Net Income Per
Common Share
Assuming Dilution $ 0.12 $ 0.23 $ 0.69 $ 0.39
</TABLE>
NOTE 5 -- NON-RECURRING ACQUISITION COSTS
Included in cost of sales and operating expenses for the quarter and nine
months ended March 31, 1998 are non-recurring charges of $4,738,000 and
$15,700,000, respectively, related to the inventory and acquired R&D valuation
at acquisition.
NOTE 6 -- YORK SENSORS LTD ACQUISITION
On December 22, 1997, the Company acquired York Sensors Ltd. in Hampshire,
U.K. The acquired business is involved in the design and manufacture of
distributed temperature sensing (DTS) equipment based on optical time domain
reflectometer (OTDR) technology for the electric utility, oil exploration and
other industries.
The Company acquired assets of approximately $930,000 and liabilities of
approximately $1,902,000 for a nominal purchase price. This resulted in
goodwill of approximately $972,000. The acquisition has been accounted for
as a purchase and, accordingly, the net assets and results of operations are
included in the consolidated financial statements from the effective date of
acquisition. The purchase price has been allocated to the assets and
liabilities based on their estimated fair values at the date of acquisition.
NOTE 7 -- EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE. Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities.
9
<PAGE>
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods have
been presented, and where necessary, restated to conform to the Statement 128
requirements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
3RD QUARTER FY98 COMPARED TO 3RD QUARTER FY97
Sales for the third quarter ended March 31, 1998 were $45,778,000 compared
to $26,238,000 in the third quarter of the prior year. This represents an
increase of 74.5%. The current quarter included sales of $21,858,000 from the
Marconi acquisition. Excluding the acquisition, sales declined by $2,308,000 or
8.8% due to lower sales of communications test instruments to government and
commercial customers. Sales of the Model 1900 CSA digital communications
service monitors for PCS and TDMA protocols met the Company's expectations for
the quarter. However, sales of other test instruments remained soft, reflecting
the current worldwide slowdown in the wireless communications industry.
Gross margins decreased 10% to 31.7% of sales for the current quarter due
to inventory valuations related to the acquisition ($4,738,000). Excluding the
effect of the acquisition adjustment, gross margin for the quarter of 42.1% is
slightly higher than the third quarter of the prior year.
Operating expenses increased 36.1% to 66.2% of sales for the current
quarter due to a non-recurring write-off of in-process research and development
technology related to the acquisition ($15,700,000). Excluding the effect of the
acquisition adjustment, operating expenses were 31.9% which are 1.8% higher than
the third quarter of the prior year and are mostly due to additional sales
commissions related to the higher sales volume (2.6%) offset by a decrease in
administrative (0.6%) and engineering (0.2%) expenses.
Other expense increased by $1,222,000 due to interest expense related to
the acquisition debt.
Excluding the effect of the acquisition adjustment, the estimated effective
income tax rate was 37.5% for the third quarter compared to 40.7% in the third
quarter of the prior year. The decrease represents the activity of the
acquisition and the impact of the United Kingdom tax rate of 31%.
10
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FY98 YEAR-TO-DATE COMPARED TO FY97 YEAR-TO-DATE
Sales for the nine months ended March 31, 1998 were $98,838,000 compared to
$76,483,000 in the previous year. This represents an increase of 29.2% and
includes $21,858,000 from the Marconi acquisition. Excluding the acquisition,
sales were relatively flat (increase of $497,000 or 0.06%).
Gross margins decreased 1.8% to 38.1% of sales for the nine month period.
After the effect of inventory valuations related to the acquisition
($4,738,000), normalized gross margins of 42.9% were 3.0% higher than the
previous year. This increase is due to a higher mix of fiber optic test
equipment, completion of the U.S. Army SINCGARS contract in March 1997 and
introduction of higher margin commercial communication test equipment.
Operating expenses increased 17.2% to 47.1% of sales for the nine month
period due to a non-recurring write-off of in-process research and development
technology related to the acquisition ($15,700,000). Excluding the effect of the
acquisition adjustment, operating expenses of 31.2% are 1.3% higher than the
previous year and are due to additional sales commissions to support the higher
sales volume (0.8%) and higher engineering expenses (0.6%) for the development
of new test instruments for the fiber optics and emerging wireless digital
telecommunications markets. Administrative expenses decreased 0.1% to 7.9% of
sales.
Other expense increased by $1,235,000 due to interest expense related to
the acquisition debt.
Excluding the effect of the acquisition adjustment, the estimated effective
income tax rate was 39.2% for the nine months period compared to 39.8% for the
previous year.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations were $8,453,000 and $6,060,000 for the
nine month periods ended March 31, 1998 and 1997, respectively. The increase in
funds provided was due to increases in operating income before non-cash,
non-recurring charges coupled with improved asset management.
Cash flows used in investing activities and cash flows provided in
financing activities reflect primarily the acquisition payment and resulting
loans.
A $.03 per share cash dividend was authorized by the Board of Directors and
paid in the second and first quarter of this year. The Board of Directors will
review quarterly the appropriateness of future dividend payments taking into
consideration numerous factors including the Company's cash requirements and
performance.
11
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Working capital increased to $48,818,000 at March 31, 1998 compared to
$33,515,000 at June 30, 1997.
On September 20, 1996, the Board of Directors of the Company authorized the
repurchase of up to 750,000 shares of the Company's common stock. The main
purpose of the shares buyback program is to offset stock option exercises from
treasury stock and as a utilization of the anticipated excess cash flow during
the year. As of March 31, 1998, the Company had purchased 470,000 shares under
the program.
The Company has available a revolving line of credit for $30,000,000 which
expires on February 5, 2004. At March 31, 1998, there were $9,000,000
borrowings under the line of credit.
The Company anticipates that the available line of credit and funds
generated from operations will be adequate to meet capital asset expenditures,
interest and debt requirements and working capital needs for the next twelve
months.
SAFE HARBOR STATEMENTS
The statements which are not actual reported financial results or
historical facts contained in this Management's Discussions and Analysis of
Financial Condition and Results of Operations are forward-looking statements
that involve certain risks and uncertainties. These risks and uncertainties
include, but are not limited to, product demand and market acceptance,
competition and pricing, product development, product mix, capacity and supply
constraints, timing of orders and shipments, availability of capital resources,
general business and economic conditions, regulatory changes and other risks
described in the Company's most recent Form 10-K and Annual Report as of June
30, 1997.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.0 Termination agreement between the Company and Jeffrey A.
Bloomer
10.1 Termination agreement between the Company and Iain M.
Robertson
11.0 Statement Re: Computation of Per Share Earnings
27.0 Financial Data Schedule
12
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(b) Reports on Form 8-K
Form 8-K Filed on February 2, 1998 (Restructure of Organization)
Form 8-K Filed on February 20, 1998 (Marconi acquisition)
Form 8-K/A (Amend. No. 1) Filed on March 2, 1998 (Marconi acquisition)
Form 8-K/A (Amend. No. 2) Filed on April 22, 1998 (Marconi
acquisition)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IFR SYSTEMS, INC.
Date: May 13, 1998 /s/ Alfred H. Hunt, III
-------------- ------------------------------
Alfred H. Hunt, III,
President and CEO
(Duly authorized officer)
/s/ Jeffrey A. Bloomer
------------------------------
Jeffrey A. Bloomer
Chief Financial Officer
and Treasurer
(Principal financial and chief
accounting officer)
13
<PAGE>
EXHIBIT (10.0) TERMINATION AGREEMENT
THIS AGREEMENT, dated and effective as of the 28th day of January, 1998, is
made and entered into by and between IFR SYSTEMS, INC., a Delaware corporation
("IFR"), and Jeffrey A. Bloomer ("Executive").
WHEREAS, Executive has made and is expected to make a major contribution to
the profitability, growth and financial strength of IFR; and
WHEREAS, IFR considers the continued services of Executive to be in the
best interests of IFR and its shareholders and desires to assure the continued
services of Executive on behalf of IFR on an objective and impartial basis and
without distraction or conflict of interest in the event of an attempt to change
control of IFR; and
WHEREAS, Executive is willing to remain in the employ of IFR upon the
understanding that IFR will provide him with income security upon the terms and
subject to the conditions reflected herein.
NOW THEREFORE, in consideration of the promises and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. PAYMENT OF AMOUNTS TO EXECUTIVE. IFR will pay to Executive
the benefits described in Section 2 hereof in the event that: (a) a Change of
Control (as defined in Section 3 hereof) of IFR occurs; and (b) Executive's
employment with IFR is terminated within two years after the Change of Control
occurs either (i) by IFR for any reason other than Serious Executive Misconduct
(as defined in Section 4 hereof), death, normal retirement, or permanent and
total disability (defined as the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 12 months), or (ii) by
Executive for Good Reason (as defined in Section 5 hereof).
SECTION 2. BENEFITS TO BE PAID TO EXECUTIVE. If required by the terms
of Section 1 of this Agreement, IFR will pay to Executive the following
benefits, in the time and manner described:
SECTION 2.01. SALARY AND BONUS. IFR will pay to Executive within ten
(10) days of the termination of his employment: (1) any amount of salary and
bonus or incentive compensation due; and (2) any portions thereof earned or
accrued but not yet due to Executive at the time of the termination of his
employment. In addition, with respect to any bonus or incentive compensation
based upon performance goals for a fiscal year or other period of time which has
not then expired, IFR shall, within sixty (60) days following the expiration of
such fiscal year or other period of time, pay to Executive the pro rata portion
of any such bonus or incentive compensation applicable to the portion of such
fiscal year or other period of time prior to the termination of employment.
1
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IFR will also pay to Executive as severance compensation in a lump-sum
payment within ten (10) days of the termination of his employment an amount
equal to 2.95 times Executive's Average Annual Compensation. For purposes of
this Agreement, the term "Average Annual Compensation" shall mean the average of
Executive's salary, bonuses, and incentive compensation (exclusive of
compensation under any stock option, stock appreciation right or other similar
equity based compensation arrangement maintained by IFR or any of its
subsidiaries or affiliates which was includible in the gross income of Executive
for federal income tax purposes) for the five (5) most recent taxable years (or
such shorter period as Executive has been employed) of Executive ending before
the date on which the Change of Control occurred. Average Annual Compensation
shall not include reimbursements or other expense allowances, fringe benefits
(cash and non-cash), moving expenses, and welfare benefits. Average Annual
Compensation shall, however, include Elective Contributions made by IFR on
Executive's behalf. "Elective Contributions" are amounts excludable from
Executive's gross income under Code Sections 125, 402(g)(1), 402(h), or any
nonqualified deferred compensation plan.
SECTION 2.02. RETIREMENT PLANS. For the purposes of any employee
pension plan maintained by IFR or any of its subsidiaries or affiliates in which
Executive is a participant, Executive shall be deemed to be fully vested as of
the date of the termination of his employment. IFR will pay to Executive within
ten (10) days of the immediately following plan valuation date the difference
between such deemed amount and Executive's actual account balance(s) in such
plan(s) (valued as of the immediately following plan valuation date). IFR will
also pay to Executive, at the same time and as an additional benefit under this
Agreement, an amount equal to fifty percent (50%) of any payment made under this
Section 2.02.
SECTION 2.03. DISABILITY AND MEDICAL INSURANCE BENEFITS. Until the
sooner of (1) the date which is three years after the termination of Executive's
employment, or (2) the date of death of Executive, IFR will maintain in full
force and effect all disability and medical insurance policy, plan or program
coverage benefits for Executive to which Executive was entitled immediately
prior to the termination of Executive's employment. If the terms of any
disability or medical insurance policy, plan or program maintained by IFR do not
permit the continued coverage of, and participation, by Executive, then IFR will
arrange to provide to Executive a benefit substantially similar to, and at least
as favorable as, the incremental benefit which Executive would have been
entitled to receive under any such IFR policy, plan or program had the coverage
and participation by Executive in such policy, plan or program continued from
the date of Executive's termination of employment until a date three years
thereafter. If the provision of the above benefits results in additional income
being imputed to Executive for purposes of income or other taxes, within ten
(10) days of Executive giving notice of the imputation of such income, IFR will
pay to Executive, as an additional benefit under this Agreement, an amount equal
to fifty percent (50%) of the amount of additional income being imputed to
Executive as a result of the benefits provided under this Section 2.03.
Executive shall also have the option, in lieu of the continuation of
benefits for the three year period described above, to have assigned to him at
no cost, and with no apportionment of prepaid premiums, any assignable
disability or medical insurance policy
2
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specifically relating to Executive which is owned by IFR.
SECTION 2.04 LIFE INSURANCE. Notwithstanding the terms of any other
agreement to which IFR and Executive may be parties, Executive shall have the
option to have assigned to him, or to a trust established by him, in a manner
that will cause him not to incur any loss, cost or expense, and with no
apportionment of prepaid premiums, any assignable life insurance policy
specifically relating to Executive which is owned by IFR. For this purpose, the
phrase "loss, cost or expense" shall include, without limitation, indebtedness
to the insurer, IFR or any other party, federal or state income tax liability,
or any other indebtedness. If the assignment would, in the opinion of legal
counsel selected by Executive in the manner provided in the following sentence,
result in such a loss, cost or expense, IFR shall pay Executive, when it makes
the assignment, an amount of cash equal to the amount of any such loss, cost or
expense. In the event that Executive directs IFR to make such an assignment,
IFR shall not cause any such assignment to occur without having first received
from legal counsel selected by Executive an opinion that the manner of
assignment proposed by IFR satisfies the terms and conditions of this Section
2.04 and the remainder of this Agreement. IFR shall pay all legal fees and
expenses incurred by Executive in securing such opinion.
SECTION 2.05. TAXES. In addition to the above payments and benefits,
within ten (10) days of the termination of Executive's employment, IFR will pay
to Executive, as an additional benefit under this Agreement, the amount of any
tax imposed on Executive by Section 4999 of the Internal Revenue Code of 1986,
as amended, and any similar provision of any state tax code as a result of
receiving payments and benefits under this Agreement. Because such payment will
itself constitute compensation includible in Executive's gross income for income
tax purposes, IFR will also pay to Executive, as an additional benefit under
this Agreement, an amount equal to the incremental federal and state income
taxes incurred by Executive as a result of receiving any payments under this
Section 2.05 including the payment called for in this sentence. For purposes of
this section 2.05 it shall at all times be presumed that Executive is subject to
federal and state income taxes at the highest marginal rates then in effect,
including surcharge rates.
SECTION 3. DEFINITION OF CHANGE OF CONTROL. For purposes of this
Agreement, a "Change of Control" shall occur upon any Person (meaning any
individual, firm, corporation, partnership or other entity including any
successor of any such Person) together with all Affiliates and Associates
(having the respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934 (the
"Exchange Act")) of such Person becoming the beneficial Owner (as defined below)
of twenty percent (20%) or more of the Common Stock then outstanding; excluding
IFR, any subsidiary of IFR (meaning with reference to IFR, any corporation or
other entity of which a majority of the voting power of the voting securities or
equity interest is beneficially owned, directly or indirectly, by IFR, or
otherwise controlled by IFR), any employee benefit plan of IFR or of any
Subsidiary of IFR, or any Person or entity organized, appointed or established
by IFR for or pursuant to the terms of any such plan. Notwithstanding the
foregoing, a Change of Control will not occur as the result of an acquisition of
shares of Common Stock by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially owned by
a Person to twenty percent (20%) or more of the shares of the
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Common Stock then outstanding; PROVIDED, HOWEVER, that if a Person shall become
the Beneficial Owner of twenty percent (20%) or more of the shares of the Common
Stock then outstanding by reason of share purchases by IFR, and shall, after
such share purchases by IFR, become the Beneficial Owner of any additional
shares of the Common Stock, then a Change in Control shall be deemed to have
occurred.
For purposes of this Agreement a Person shall be deemed the "Beneficial
Owner" of, and shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), whether
or not in writing; or upon the exercise of conversion rights, exchange
rights, rights (other than these Rights), warrants or options, or
otherwise; PROVIDED, HOWEVER, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own" securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person
or any of such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or
has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Exchange Act), including pursuant
to any agreement, arrangement or understanding, whether or not in writing;
PROVIDED, HOWEVER, that a Person shall not be deemed the "Beneficial Owner"
of, or to "beneficially own" any security under this subparagraph (ii) as a
result of an agreement, arrangement or understanding to vote such security
if such agreement, arrangement or understanding (A) arises solely from a
revocable proxy or consent given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act, and
(B) is not also then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person
(or any of such Person's Affiliates or Associates) has any agreement,
arrangement or understanding (other than customary agreements with and
between underwriters and selling group members with respect to a bona fide
public offering of securities), whether or not in writing, for the purpose
of acquiring, holding, voting (except pursuant to a revocable proxy as
described in the proviso to subparagraph (ii) of this paragraph) or
disposing of any voting securities of IFR.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase "then outstanding," when used with reference to a Person's
Beneficial Ownership of
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securities of the Company, shall mean the number of such securities then issued
and outstanding together with the number of such securities not then actually
issued and outstanding which such Person would be deemed to own beneficially
hereunder.
SECTION 4. DEFINITION OF SERIOUS EXECUTIVE MISCONDUCT. For purposes of
this Agreement, the term "Serious Executive Misconduct" shall mean an act or
acts by Executive which: (a) would constitute a felony under Delaware law; or
(b) were dishonest and which resulted in, or were intended by Executive to
directly or indirectly result in, the personal enrichment of Executive at IFR's
expense.
SECTION 5. DEFINITION OF GOOD REASON. For purposes of this Agreement,
Executive shall have "Good Reason" to terminate his employment with IFR if:
(a) Executive is assigned any duties or responsibilities which are
inconsistent with his position, duties, responsibilities or status on
the date of this Agreement, or his reporting responsibilities or
titles in effect on the date of this Agreement are changed;
(b) Executive's base compensation is reduced or he experiences in any year
a reduction in the ratio of his incentive and bonus compensation to
his base compensation in excess of the reduction which would have
occurred under the incentive and bonus formula in effect immediately
prior to the Change of Control;
(c) Executive is transferred to a principal work location which would
reasonably require a change in Executive's residence; or
(d) any provision of this Agreement is breached by IFR.
SECTION 6. TERM. The term of this Agreement (the "Term") shall begin
on the date of this Agreement and shall continue until December 31, 1999, and
thereafter, this Agreement shall be automatically renewed for successive
one-year terms unless terminated by either party giving the other written notice
of termination at least ninety (90) days prior to the expiration of such
original term or any such renewal term; PROVIDED, HOWEVER, THAT if a Change of
Control occurs on or before December 31, 1999 or on or before the expiration of
any renewal term, the Term of this Agreement shall continue at least until the
date which is three years after the anniversary date of this Agreement which
first follows the date on which a Change of Control occurs.
SECTION 7. ENFORCEMENT OF AGREEMENT. IFR is aware that upon the
occurrence of a Change of Control the Board of Directors or a shareholder of IFR
may then cause, or attempt to cause, IFR to refuse to comply with its
obligations under this Agreement, or make, cause, or attempt to cause IFR to
institute, or may institute litigation seeking to have this Agreement declared
unenforceable, or may take or attempt to take, other action to deny Executive
the benefits intended under this Agreement. In these circumstances, the purpose
of this Agreement could be frustrated.
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It is the intent of IFR that Executive not be required to incur the
expenses associated with the enforcement of his rights under this Agreement by
litigation or other legal action because the cost and expense thereof would
substantially detract from the benefits intended to be extended to Executive
hereunder. It is also the intent of IFR that Executive not be bound to
negotiate any settlement of his rights hereunder under threat of incurring such
expenses.
Accordingly, if following a Change of Control, it should appear to
Executive that IFR has failed to comply with any of its obligations under this
Agreement, or in the event that IFR or any other person takes any action to
declare this Agreement void or unenforceable, or institutes any litigation or
other legal action designed to deny, diminish or to recover from Executive the
benefits entitled to be provided to Executive hereunder, and if Executive has
complied with all of his obligations under this Agreement, then: (a) IFR
irrevocably authorizes Executive from time to time to retain counsel of his
choice at the expense of IFR as provided in this Section 7 to represent
Executive in connection with the initiation or defense of any litigation or
other legal action whether by or against IFR or any director, officer,
shareholder, or other person affiliated with IFR, in any jurisdiction
notwithstanding any existing or prior attorney-client relationship between IFR
and such counsel; and (b) IFR irrevocably consents to Executive entering into an
attorney-client relationship with such counsel, and IFR and Executive agree that
a confidential relationship shall exist between Executive and such counsel.
The reasonable fees and expenses of counsel selected from time to time by
Executive as hereinabove provided, and all other costs and expenses (including
court costs) incurred by Executive as a result of any claim, action or
proceeding arising out of, or challenging the validity, admissibility or
enforceability of this Agreement or any provision hereof, shall be paid (or
reimbursed to Executive) by IFR on a regular basis upon presentation by
Executive of a statement or statements prepared by his counsel in accordance
with its customary practices, up to a maximum aggregate amount of $750,000.
SECTION 8. SEVERANCE PAY; NO DUTY TO MITIGATE. All amounts payable to
Executive under this Agreement shall not be treated as damages but as severance
compensation to which Executive is entitled by reason of the termination of his
employment in the circumstances contemplated by this Agreement. Executive shall
not be required to mitigate the amount of a payment or benefit provided for in
this Agreement by seeking other employment or otherwise. IFR shall not be
entitled to set off against the amounts payable to Executive any amounts earned
by Executive in other employment after termination of his employment with IFR,
or any amounts which might or could have been earned by Executive in other
employment had he sought such other employment.
SECTION 9. CONTINUED EMPLOYMENT OF EXECUTIVE AFTER POTENTIAL CHANGE OF
CONTROL. Subject to the provisions of this Agreement, Executive agrees to
remain in the employ of IFR for a period of at least one (1) year following the
occurrence of a Potential Change of Control. For purposes of this Agreement, a
"Potential Change of Control" shall be deemed to have occurred if: (a) IFR
enters into an agreement the consummation of which would result in the
occurrence of a Change of Control within the meaning of Section 3 of this
Agreement; (b) if any person, including IFR, publicly announces an intention to
take or to consider taking
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actions which if consummated would constitute a Change of Control within the
meaning of Section 3 of this Agreement; (c) if any person becomes the beneficial
owner, directly or indirectly, of securities representing ten percent (10%) or
more of the voting power of IFR's then outstanding voting shares; or (d) the
Board of Directors of IFR adopts a resolution to the effect that, for purposes
of this Agreement, a Potential Change of Control has occurred.
SECTION 10. OTHER PROVISIONS.
SECTION 10.01. ASSIGNMENT. No right, benefit or interest hereunder
shall be subject to assignment, anticipation, alienation, sale, encumbrance,
charge, pledge, hypothecation or set off in respect of any claim, debt or
obligation, or to execution, attachment, levy or similar process; provided,
however, that Executive may assign any right, benefit or interest hereunder if
such assignment is permitted under the terms of any plan or policy of insurance
or annuity contract governing such right, benefit or interest.
SECTION 10.02. MODIFICATION. This Agreement may not be amended,
modified, supplemented or cancelled except by written agreement of the parties.
SECTION 10.03. WAIVER. No provision of this Agreement may be waived
except by a writing signed by the party to be bound thereby.
SECTION 10.04. SEVERABILITY. In the event that any provision or
portion of this Agreement shall be determined to be invalid or unenforceable for
any reason, the remaining provisions of this Agreement shall remain in full
force and effect to the fullest extent permitted by law.
SECTION 10.05. BINDING ON SUCCESSORS AND ASSIGNS. This Agreement
shall be binding upon and inure to the benefit of Executive (and his personal
representatives, heirs and assigns). This Agreement shall also be binding upon
and inure to the benefit of IFR and any successor organization or organizations
which shall succeed to substantially all of the business and property of IFR,
whether by means of merger, consolidation, acquisition of substantially all of
the assets of IFR or otherwise, including by operation of law.
SECTION 10.06. NOTICES. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if delivered in person or sent by
registered or certified mail, postage prepaid, addressed as set forth below, or
to such other address as shall be furnished in writing by the party which is the
addressee to the other party:
If to IFR: IFR Sytems, Inc.
10200 West York Street
Wichita, Kansas 67215
If to Executive: Jeffrey A. Bloomer
115 South Parkdale
Wichita, Kansas 67209
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SECTION 10.07. ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to the matters
covered hereby. All representations, promises and prior or contemporaneous
understandings between the parties are merged into and expressed in this
Agreement.
SECTION 10.08. GOVERNING LAW. This Agreement has been made pursuant
to, and shall be governed and construed in accordance with the laws of the State
of Delaware.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
IFR SYSTEMS, INC.
By
------------------------------------------
EXECUTIVE
------------------------------------------
JEFFREY A. BLOOMER
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EXHIBIT (10.1) TERMINATION AGREEMENT
THIS AGREEMENT, dated and effective as of the 28th day of January, 1998, is
made and entered into by and between IFR SYSTEMS, INC., a Delaware corporation
("IFR"), and Iain Robertson ("Executive").
WHEREAS, Executive has made and is expected to make a major contribution to
the profitability, growth and financial strength of IFR; and
WHEREAS, IFR considers the continued services of Executive to be in the
best interests of IFR and its shareholders and desires to assure the continued
services of Executive on behalf of IFR on an objective and impartial basis and
without distraction or conflict of interest in the event of an attempt to change
control of IFR; and
WHEREAS, Executive is willing to remain in the employ of IFR upon the
understanding that IFR will provide him with income security upon the terms and
subject to the conditions reflected herein.
NOW THEREFORE, in consideration of the promises and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. PAYMENT OF AMOUNTS TO EXECUTIVE. IFR will pay to Executive
the benefits described in Section 2 hereof in the event that: (a) a Change of
Control (as defined in Section 3 hereof) of IFR occurs; and (b) Executive's
employment with IFR is terminated within two years after the Change of Control
occurs either (i) by IFR for any reason other than Serious Executive Misconduct
(as defined in Section 4 hereof), death, normal retirement, or permanent and
total disability (defined as the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 12 months), or (ii) by
Executive for Good Reason (as defined in Section 5 hereof).
SECTION 2. BENEFITS TO BE PAID TO EXECUTIVE. If required by the terms
of Section 1 of this Agreement, IFR will pay to Executive the following
benefits, in the time and manner described:
SECTION 2.01. SALARY AND BONUS. IFR will pay to Executive within ten
(10) days of the termination of his employment: (1) any amount of salary and
bonus or incentive compensation due; and (2) any portions thereof earned or
accrued but not yet due to Executive at the time of the termination of his
employment. In addition, with respect to any bonus or incentive compensation
based upon performance goals for a fiscal year or other period of time which has
not then expired, IFR shall, within sixty (60) days following the expiration of
such fiscal year or other period of time, pay to Executive the pro rata portion
of any such bonus or incentive compensation applicable to the portion of such
fiscal year or other period of time
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prior to the termination of employment.
IFR will also pay to Executive as severance compensation in a lump-sum
payment within ten (10) days of the termination of his employment an amount
equal to 2.95 times Executive's Average Annual Compensation. For purposes of
this Agreement, the term "Average Annual Compensation" shall mean the average of
Executive's salary, bonuses, and incentive compensation (exclusive of
compensation under any stock option, stock appreciation right or other similar
equity based compensation arrangement maintained by IFR or any of its
subsidiaries or affiliates which was includible in the gross income of Executive
for federal income tax purposes) for the five (5) most recent taxable years (or
such shorter period as Executive has been employed) of Executive ending before
the date on which the Change of Control occurred. Average Annual Compensation
shall not include reimbursements or other expense allowances, fringe benefits
(cash and non-cash), moving expenses, and welfare benefits. Average Annual
Compensation shall, however, include Elective Contributions made by IFR on
Executive's behalf. "Elective Contributions" are amounts excludable from
Executive's gross income under Code Sections 125, 402(g)(1), 402(h), or any
nonqualified deferred compensation plan.
SECTION 2.02. RETIREMENT PLANS. For the purposes of any employee
pension plan maintained by IFR or any of its subsidiaries or affiliates in which
Executive is a participant, Executive shall be deemed to be fully vested as of
the date of the termination of his employment. IFR will pay to Executive within
ten (10) days of the immediately following plan valuation date the difference
between such deemed amount and Executive's actual account balance(s) in such
plan(s) (valued as of the immediately following plan valuation date). IFR will
also pay to Executive, at the same time and as an additional benefit under this
Agreement, an amount equal to fifty percent (50%) of any payment made under this
Section 2.02.
SECTION 2.03. DISABILITY AND MEDICAL INSURANCE BENEFITS. Until the
sooner of (1) the date which is three years after the termination of Executive's
employment, or (2) the date of death of Executive, IFR will maintain in full
force and effect all disability and medical insurance policy, plan or program
coverage benefits for Executive to which Executive was entitled immediately
prior to the termination of Executive's employment. If the terms of any
disability or medical insurance policy, plan or program maintained by IFR do not
permit the continued coverage of, and participation, by Executive, then IFR will
arrange to provide to Executive a benefit substantially similar to, and at least
as favorable as, the incremental benefit which Executive would have been
entitled to receive under any such IFR policy, plan or program had the coverage
and participation by Executive in such policy, plan or program continued from
the date of Executive's termination of employment until a date three years
thereafter. If the provision of the above benefits results in additional income
being imputed to Executive for purposes of income or other taxes, within ten
(10) days of Executive giving notice of the imputation of such income, IFR will
pay to Executive, as an additional benefit under this Agreement, an amount equal
to fifty percent (50%) of the amount of additional income being imputed to
Executive as a result of the benefits provided under this Section 2.03.
Executive shall also have the option, in lieu of the continuation of
benefits for the three year period described above, to have assigned to him at
no cost, and with no
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apportionment of prepaid premiums, any assignable disability or medical
insurance policy specifically relating to Executive which is owned by IFR.
SECTION 2.04 LIFE INSURANCE. Notwithstanding the terms of any other
agreement to which IFR and Executive may be parties, Executive shall have the
option to have assigned to him, or to a trust established by him, in a manner
that will cause him not to incur any loss, cost or expense, and with no
apportionment of prepaid premiums, any assignable life insurance policy
specifically relating to Executive which is owned by IFR. For this purpose, the
phrase "loss, cost or expense" shall include, without limitation, indebtedness
to the insurer, IFR or any other party, federal or state income tax liability,
or any other indebtedness. If the assignment would, in the opinion of legal
counsel selected by Executive in the manner provided in the following sentence,
result in such a loss, cost or expense, IFR shall pay Executive, when it makes
the assignment, an amount of cash equal to the amount of any such loss, cost or
expense. In the event that Executive directs IFR to make such an assignment,
IFR shall not cause any such assignment to occur without having first received
from legal counsel selected by Executive an opinion that the manner of
assignment proposed by IFR satisfies the terms and conditions of this Section
2.04 and the remainder of this Agreement. IFR shall pay all legal fees and
expenses incurred by Executive in securing such opinion.
SECTION 2.05. TAXES. In addition to the above payments and benefits,
within ten (10) days of the termination of Executive's employment, IFR will pay
to Executive, as an additional benefit under this Agreement, the amount of any
tax imposed on Executive by Section 4999 of the Internal Revenue Code of 1986,
as amended, and any similar provision of any state tax code as a result of
receiving payments and benefits under this Agreement. Because such payment will
itself constitute compensation includible in Executive's gross income for income
tax purposes, IFR will also pay to Executive, as an additional benefit under
this Agreement, an amount equal to the incremental federal and state income
taxes incurred by Executive as a result of receiving any payments under this
Section 2.05 including the payment called for in this sentence. For purposes of
this section 2.05 it shall at all times be presumed that Executive is subject to
federal and state income taxes at the highest marginal rates then in effect,
including surcharge rates.
SECTION 3. DEFINITION OF CHANGE OF CONTROL. For purposes of this
Agreement, a "Change of Control" shall occur upon any Person (meaning any
individual, firm, corporation, partnership or other entity including any
successor of any such Person) together with all Affiliates and Associates
(having the respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934 (the
"Exchange Act")) of such Person becoming the beneficial Owner (as defined below)
of twenty percent (20%) or more of the Common Stock then outstanding; excluding
IFR, any subsidiary of IFR (meaning with reference to IFR, any corporation or
other entity of which a majority of the voting power of the voting securities or
equity interest is beneficially owned, directly or indirectly, by IFR, or
otherwise controlled by IFR), any employee benefit plan of IFR or of any
Subsidiary of IFR, or any Person or entity organized, appointed or established
by IFR for or pursuant to the terms of any such plan. Notwithstanding the
foregoing, a Change of Control will not occur as the result of an acquisition of
shares of Common Stock by the Company
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which, by reducing the number of shares outstanding, increases the proportionate
number of shares beneficially owned by a Person to twenty percent (20%) or more
of the shares of the Common Stock then outstanding; PROVIDED, HOWEVER, that if a
Person shall become the Beneficial Owner of twenty percent (20%) or more of the
shares of the Common Stock then outstanding by reason of share purchases by IFR,
and shall, after such share purchases by IFR, become the Beneficial Owner of any
additional shares of the Common Stock, then a Change in Control shall be deemed
to have occurred.
For purposes of this Agreement a Person shall be deemed the "Beneficial
Owner" of, and shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), whether
or not in writing; or upon the exercise of conversion rights, exchange
rights, rights (other than these Rights), warrants or options, or
otherwise; PROVIDED, HOWEVER, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own" securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person
or any of such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or
has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Exchange Act), including pursuant
to any agreement, arrangement or understanding, whether or not in writing;
PROVIDED, HOWEVER, that a Person shall not be deemed the "Beneficial Owner"
of, or to "beneficially own" any security under this subparagraph (ii) as a
result of an agreement, arrangement or understanding to vote such security
if such agreement, arrangement or understanding (A) arises solely from a
revocable proxy or consent given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act, and
(B) is not also then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person
(or any of such Person's Affiliates or Associates) has any agreement,
arrangement or understanding (other than customary agreements with and
between underwriters and selling group members with respect to a bona fide
public offering of securities), whether or not in writing, for the purpose
of acquiring, holding, voting (except pursuant to a revocable proxy as
described in the proviso to subparagraph (ii) of this paragraph) or
disposing of any voting securities of IFR.
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Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase "then outstanding," when used with reference to a Person's
Beneficial Ownership of securities of the Company, shall mean the number of such
securities then issued and outstanding together with the number of such
securities not then actually issued and outstanding which such Person would be
deemed to own beneficially hereunder.
SECTION 4. DEFINITION OF SERIOUS EXECUTIVE MISCONDUCT. For purposes of
this Agreement, the term "Serious Executive Misconduct" shall mean an act or
acts by Executive which: (a) would constitute a felony under Delaware law; or
(b) were dishonest and which resulted in, or were intended by Executive to
directly or indirectly result in, the personal enrichment of Executive at IFR's
expense.
SECTION 5. DEFINITION OF GOOD REASON. For purposes of this Agreement,
Executive shall have "Good Reason" to terminate his employment with IFR if:
(a) Executive is assigned any duties or responsibilities which are
inconsistent with his position, duties, responsibilities or status on
the date of this Agreement, or his reporting responsibilities or
titles in effect on the date of this Agreement are changed;
(b) Executive's base compensation is reduced or he experiences in any year
a reduction in the ratio of his incentive and bonus compensation to
his base compensation in excess of the reduction which would have
occurred under the incentive and bonus formula in effect immediately
prior to the Change of Control;
(c) Executive is transferred to a principal work location which would
reasonably require a change in Executive's residence; or
(d) any provision of this Agreement is breached by IFR.
SECTION 6. TERM. The term of this Agreement (the "Term") shall begin
on the date of this Agreement and shall continue until December 31, 1999, and
thereafter, this Agreement shall be automatically renewed for successive
one-year terms unless terminated by either party giving the other written notice
of termination at least ninety (90) days prior to the expiration of such
original term or any such renewal term; PROVIDED, HOWEVER, THAT if a Change of
Control occurs on or before December 31, 1999 or on or before the expiration of
any renewal term, the Term of this Agreement shall continue at least until the
date which is three years after the anniversary date of this Agreement which
first follows the date on which a Change of Control occurs.
SECTION 7. ENFORCEMENT OF AGREEMENT. IFR is aware that upon the
occurrence of a Change of Control the Board of Directors or a shareholder of IFR
may then cause, or attempt to cause, IFR to refuse to comply with its
obligations under this Agreement, or make, cause, or attempt to cause IFR to
institute, or may institute litigation seeking to have this Agreement
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declared unenforceable, or may take or attempt to take, other action to deny
Executive the benefits intended under this Agreement. In these circumstances,
the purpose of this Agreement could be frustrated.
It is the intent of IFR that Executive not be required to incur the
expenses associated with the enforcement of his rights under this Agreement by
litigation or other legal action because the cost and expense thereof would
substantially detract from the benefits intended to be extended to Executive
hereunder. It is also the intent of IFR that Executive not be bound to
negotiate any settlement of his rights hereunder under threat of incurring such
expenses.
Accordingly, if following a Change of Control, it should appear to
Executive that IFR has failed to comply with any of its obligations under this
Agreement, or in the event that IFR or any other person takes any action to
declare this Agreement void or unenforceable, or institutes any litigation or
other legal action designed to deny, diminish or to recover from Executive the
benefits entitled to be provided to Executive hereunder, and if Executive has
complied with all of his obligations under this Agreement, then: (a) IFR
irrevocably authorizes Executive from time to time to retain counsel of his
choice at the expense of IFR as provided in this Section 7 to represent
Executive in connection with the initiation or defense of any litigation or
other legal action whether by or against IFR or any director, officer,
shareholder, or other person affiliated with IFR, in any jurisdiction
notwithstanding any existing or prior attorney-client relationship between IFR
and such counsel; and (b) IFR irrevocably consents to Executive entering into an
attorney-client relationship with such counsel, and IFR and Executive agree that
a confidential relationship shall exist between Executive and such counsel.
The reasonable fees and expenses of counsel selected from time to time by
Executive as hereinabove provided, and all other costs and expenses (including
court costs) incurred by Executive as a result of any claim, action or
proceeding arising out of, or challenging the validity, admissibility or
enforceability of this Agreement or any provision hereof, shall be paid (or
reimbursed to Executive) by IFR on a regular basis upon presentation by
Executive of a statement or statements prepared by his counsel in accordance
with its customary practices, up to a maximum aggregate amount of $750,000.
SECTION 8. SEVERANCE PAY; NO DUTY TO MITIGATE. All amounts payable to
Executive under this Agreement shall not be treated as damages but as severance
compensation to which Executive is entitled by reason of the termination of his
employment in the circumstances contemplated by this Agreement. Executive shall
not be required to mitigate the amount of a payment or benefit provided for in
this Agreement by seeking other employment or otherwise. IFR shall not be
entitled to set off against the amounts payable to Executive any amounts earned
by Executive in other employment after termination of his employment with IFR,
or any amounts which might or could have been earned by Executive in other
employment had he sought such other employment.
SECTION 9. CONTINUED EMPLOYMENT OF EXECUTIVE AFTER POTENTIAL CHANGE OF
CONTROL. Subject to the provisions of this Agreement, Executive agrees to
remain in the employ of IFR for a period of at least one (1) year following the
occurrence of a Potential Change of Control.
6
<PAGE>
For purposes of this Agreement, a "Potential Change of Control" shall be deemed
to have occurred if: (a) IFR enters into an agreement the consummation of which
would result in the occurrence of a Change of Control within the meaning of
Section 3 of this Agreement; (b) if any person, including IFR, publicly
announces an intention to take or to consider taking actions which if
consummated would constitute a Change of Control within the meaning of Section 3
of this Agreement; (c) if any person becomes the beneficial owner, directly or
indirectly, of securities representing ten percent (10%) or more of the voting
power of IFR's then outstanding voting shares; or (d) the Board of Directors of
IFR adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change of Control has occurred.
SECTION 10. OTHER PROVISIONS.
SECTION 10.01. ASSIGNMENT. No right, benefit or interest hereunder
shall be subject to assignment, anticipation, alienation, sale, encumbrance,
charge, pledge, hypothecation or set off in respect of any claim, debt or
obligation, or to execution, attachment, levy or similar process; provided,
however, that Executive may assign any right, benefit or interest hereunder if
such assignment is permitted under the terms of any plan or policy of insurance
or annuity contract governing such right, benefit or interest.
SECTION 10.02. MODIFICATION. This Agreement may not be amended,
modified, supplemented or cancelled except by written agreement of the parties.
SECTION 10.03. WAIVER. No provision of this Agreement may be waived
except by a writing signed by the party to be bound thereby.
SECTION 10.04. SEVERABILITY. In the event that any provision or
portion of this Agreement shall be determined to be invalid or unenforceable for
any reason, the remaining provisions of this Agreement shall remain in full
force and effect to the fullest extent permitted by law.
SECTION 10.05. BINDING ON SUCCESSORS AND ASSIGNS. This Agreement
shall be binding upon and inure to the benefit of Executive (and his personal
representatives, heirs and assigns). This Agreement shall also be binding upon
and inure to the benefit of IFR and any successor organization or organizations
which shall succeed to substantially all of the business and property of IFR,
whether by means of merger, consolidation, acquisition of substantially all of
the assets of IFR or otherwise, including by operation of law.
SECTION 10.06. NOTICES. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if delivered in person or sent by
registered or certified mail, postage prepaid, addressed as set forth below, or
to such other address as shall be furnished in writing by the party which is the
addressee to the other party:
If to IFR: IFR Sytems, Inc.
10200 West York Street
7
<PAGE>
Wichita, Kansas 67215
If to Executive: Iain Robertson
15290 S.W. Teal Boulevard
Beaverton, Oregon 97007
SECTION 10.07. ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to the matters
covered hereby. All representations, promises and prior or contemporaneous
understandings between the parties are merged into and expressed in this
Agreement.
SECTION 10.08. GOVERNING LAW. This Agreement has been made pursuant
to, and shall be governed and construed in accordance with the laws of the State
of Delaware.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
IFR SYSTEMS, INC.
By
------------------------------------------
EXECUTIVE
------------------------------------------
IAIN ROBERTSON
8
<PAGE>
IFR SYSTEMS, INC.
EXHIBIT (11.0) - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BASIC:
Average shares outstanding 8,173 8,164 8,190 8,169
Net income (loss) $ (16,984) $ 1,726 $ (12,818) $ 4,552
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Per share amount $ (2.08) $ 0.21 $ (1.57) $ 0.56
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
DILUTED:
Average shares outstanding 8,173 8,164 8,190 8,169
Net effect of dilutive stock
options-based on the treasury
stock method using the average
market price 428 329 433 310
Assumed conversion of 10%
convertible notes -- 6 -- 6
----------- ----------- ----------- -----------
Totals 8,601 8,499 8,623 8,485
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) $ (16,984) $ 1,726 $ (12,818) $ 4,552
Add 10% convertible note interest,
net of federal income tax effect -- 1 -- 4
----------- ----------- ----------- -----------
Totals $ (16,984) $ 1,727 $ (12,818) $ 4,556
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Per share amount (A) $ (1.97) $ 0.20 $ (1.49) $ 0.54
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Note - All references to number of shares, share prices and per share amounts
have been restated to reflect the stock split.
(A) - Since the per share amounts for the 1998 interim periods are
antidilutive, the face of the statements of income reflects diluted
per share amounts equal to the basic per share amounts.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF
INCOME IN THE COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 366
<SECURITIES> 0
<RECEIVABLES> 43415
<ALLOWANCES> 848
<INVENTORY> 54843
<CURRENT-ASSETS> 102488
<PP&E> 102611
<DEPRECIATION> 70198
<TOTAL-ASSETS> 200959
<CURRENT-LIABILITIES> 53670
<BONDS> 102015
0
0
<COMMON> 93
<OTHER-SE> 33876
<TOTAL-LIABILITY-AND-EQUITY> 200959
<SALES> 98838
<TOTAL-REVENUES> 98838
<CGS> 61152
<TOTAL-COSTS> 61152
<OTHER-EXPENSES> 46563
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1554
<INCOME-PRETAX> (10169)
<INCOME-TAX> 2649
<INCOME-CONTINUING> (12818)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12818)
<EPS-PRIMARY> (1.57)
<EPS-DILUTED> (1.57)
</TABLE>
